Non-compete agreements, or “non-competes,” are relatively common portions of employment contracts. Such agreements typically govern employees’ conduct following dissolution of the working relationship. Non-competes are required for a variety of reasons, including goodwill or the protection of trade secrets, confidential information, secret recipes, and more.
A person who is newly hired or promoted to an important or specialized position, such as an executive, top engineer, or product designer, is likely to be subject to a non-compete. It is less foreseeable that a minimum wage employee, such as a sandwich maker or delivery driver, will be asked to sign this type of document. Many people were understandably surprised, then, when it was revealed that all employees of Jimmy John’s, a chain of sandwich shops, are required to sign non-compete agreements as part of their employment contracts.
Courts tend to distrust non-compete agreements because of their ability to severely limit employees’ rights to work and earn a living.
Non-compete agreements are not enforceable in every jurisdiction in the United States, and they are often carefully scrutinized in those states that allow them. Courts tend to distrust non-compete agreements because of their ability to severely limit employees’ rights to work and earn a living. In order for an agreement to be valid, it must: (1) be supported by consideration at the time that it is signed; (2) protect a legitimate business interest of the employer; and (3) be reasonable in scope, geography, and time.
Jimmy John’s non-compete agreement (PDF) instructs that an employee will not have any interest in, nor perform services for, any business that derives more than ten percent of its revenue from sales of “submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches” while employed by Jimmy John’s and for two years thereafter. Further, the employee may not work for another Jimmy John’s shop for at least twelve months after leaving, regardless of the reason for the employee’s departure.
The agreement forbids former Jimmy John’s employees from working for any similar business within a three-mile radius of any Jimmy John’s store. This location clause creates a 6,000 mile blackout area in each of the forty-four states that have Jimmy John’s locations, as well as Washington, D.C.
The Jimmy John’s non-compete agreement evinces the high value that today’s employers expect to derive from even entry-level employees, but at too great of a cost. When a top executive agrees to sign a non-compete clause in his contract, it is typically the product of a negotiation through which both parties benefit. In contrast, Jimmy John’s demands that its hourly employees pledge total loyalty to a single franchise location in exchange for an unprestigious, low-paying job from which they may be fired at any time and for any reason.
Illinois attorney Kathleen Chavez has filed a class action lawsuit against the company and one of its franchisees.
There is no evidence that any Jimmy John’s location has ever tried to enforce this non-compete agreement. Nonetheless, Illinois attorney Kathleen Chavez has filed a class action lawsuit against the company and one of its franchisees. The suit is for unfair labor practices, including Jimmy John’s use of non-compete agreements for hourly employees. Chavez brings the action on behalf of two employees who were forced to sign these agreements.
Attorneys nationwide have weighed in on the issues of the case. Sherrie Voyles, a labor union lawyer from Illinois, said that she believes that it is highly unlikely any court would enforce the Jimmy John’s non-compete agreement. The franchise probably does not have a “near-permanent customer base” that would favor the use of a non-compete because Jimmy John’s and other sandwich shops like Subway likely share an overlap of customers, Voyles noted.
Texas attorney Joseph Y. Ahmad echoed Voyles’s assessment. He questioned whether the minimal amount of confidential information that Jimmy John’s shares with its sandwich makers constitutes sufficient consideration to justify subjecting an hourly employee to such a burdensome non-compete. Ahmad stated that even though Jimmy John’s may never enforce one of these agreements, the company has very little to lose in asking its low-paid workers to sign them, given the likelihood that most employees will not know the relevant law.
Agitation over these non-compete agreements has even reached the attention of members of the United States Congress. In a letter signed by thirty-five of their colleagues, Reps. Joe Crowley (D-NY) and Linda Sánchez (D-CA) asked the Federal Trade Commission (“FTC”) and the Department of Labor (“DOL”) to investigate Jimmy John’s hiring practices. The lawmakers emphatically stated that the company’s non-compete agreements are inconsistent with trade and labor laws and intimidating to the point of bullying, “counter to the American ideal of open competition.” The authors demanded that the FTC and DOL take action to prevent the agreements from affecting current and future Jimmy John’s employees.
Several major corporations are currently subject to litigation brought by their employees for these very issues.
Surprisingly, non-compete agreements and other stringent employment contract provisions are not that uncommon for low- and moderate-paying jobs. Starbucks has been criticized for giving its employees inconvenient schedules that can change at the last minute, leaving employees little time to plan their lives. A nineteen-year-old college student from Massachusetts unknowingly agreed not to work as a counselor at any summer camps within a ten-mile radius of more than thirty locations of Linx-branded camps for one year. Another Massachusetts man was required to sign a two-year non-compete agreement when employed as a pesticide worker. A former hairstylist from New England was forced to sign a non-compete that forbid him from working at any neighboring hair salon for one year.
Several major corporations are currently subject to litigation brought by their employees for these very issues. FedEx faces multiple lawsuits about whether the “independent contractors” who deliver the company’s packages are in fact employees entitled to benefits and other perks. Meanwhile, workers at an Amazon warehouse in Nevada are suing for pay for the time that they wait to be screened by security at the end of the workday. The United States Supreme Court heard arguments in the case on October 8, 2014.
Jimmy John’s has faced criticism for its labor practices prior to the current dispute. In 2010, ten Minnesota employees attempted to unionize and increase awareness of the company’s strict sick day policy, which forbids an ill employee from taking a day off unless another worker can cover the shift. Six of those workers were fired after they posted flyers all over Minneapolis warning the public that sick people are making their sandwiches. In April 2012, the National Labor Relations Board ruled that the franchise must reinstate the workers and provide full backpay for any loss of earnings and other benefits.
As for a resolution to the current issue of non-compete agreements, we will have to wait and see what happens with every college student’s favorite “freaky-fast” sandwich delivery shop.